Edited version of private advice

Authorisation Number: 1051936490308

Date of advice: 4 January 2022

Ruling

Subject: CGT - deceased estate

Question

Will any capital gain or loss you make from the sale of the Property be disregarded?

Answer

Yes.

This ruling applies for the following period:

20XX-XX income year

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

The Deceased and a partner entered into a contract to buy the property before 20 September 1985. Purchase of the Property also settled before 20 September 1985. (The Property is less than two hectares in size.)

The Deceased and the partner entered into a contract to build a residence with a commercial annex on the Property before 20 September 1985. The commercial annex occupied about one-third of the structure. The final progress payment was made after 20 September 1985.

The Deceased and the partner then began living in the residence and ran a business from the commercial annex for about 20 years.

The partner transferred their 50% interest in the Property to the Deceased after the business ceased. The Deceased continued living in the residence until passing away a couple of years ago.

You have inherited the Property from the Deceased's Estate. You have lived in the residence at the Property from the date the Deceased passed away.

You entered into a contract to sell the Property recently. The sale contract is scheduled to settle soon. You will continue to live in the residence at the Property until settlement.

Relevant legislative provisions

Income Tax Assessment Act 1997 Part 3-1

Income Tax Assessment Act 1997 Subdivision 118-B

Income Tax Assessment Act 1997 Section 118-195

Reasons for decision

Summary

Any capital gain or loss you make from the sale of the Property will be disregarded.

Detailed reasoning

You will be entitled to a full main residence exemption due to the sale of the Property because:

• You are selling a dwelling
• The amount of adjacent land being sold with the dwelling is less than two hectares
• You became the owner of the Property as a beneficiary in the Deceased's estate (it passed to you)
• The dwelling will be your main residence from the date the Deceased passed away until settlement of the sale of the Property
• The Property has not been used to derive assessable income since the Deceased passed away
• The Deceased acquired one 50% ownership interest before 20 September 1985, and
• The Deceased acquired the other 50% ownership interest on or after 20 September 1985, but it was the main residence when the Deceased passed away and was not then being used for the purpose of earning assessable income.

Note 1: The residence and commercial annex is not treated as a separate CGT asset because the contract to build them was entered into before 20 September 1985. It doesn't matter that construction was completed after 1985.

Note 2: The 50% interest the Deceased acquired after the business ceased is only tested for income producing use as at the date the Deceased passed away. Any earlier use to earn assessable income is ignored (and it occurred before the Deceased acquired this interest anyway).

Note 3: The Commissioner accepts that the building on the Property is being sold as a dwelling. It was only being used as a dwelling by the Deceased when the Deceased passed away and by you since that time. Any potential commercial use of the Property by the purchaser is not relevant.